01Two deals in every deal
Every transaction contains two deals: the one that gets announced, and the one that pays out. The announced deal is a multiple: the number that travels, the one repeated at dinners and in trade-press headlines. The deal that pays out is a structure: how much arrives at close, how much is contingent, on what conditions, and over how long.
A typical agency transaction closes with a majority of the price in cash, but rarely all of it. Most carry an earnout: a share of total consideration held back and measured over a period of years against revenue or retention targets. The remainder shows up as a seller note or as rolled equity, and rolled equity is often asked for precisely as a signal of commitment. The buyer wants you invested in the outcome you have just sold them. The founder who compares headline multiples is comparing the part of the deal that matters least.
What a deal pays once cash-at-close, earnout risk, and time are accounted for, as opposed to what it announces. A term from our own deal work: the lens that makes the unstated part of any structure visible. Doubt that isn’t removed before market doesn’t disappear; it gets restated as contingent consideration.
02Structure is doubt, restated
Why does structure exist at all? Because whatever a buyer couldn’t believe at close has to live somewhere. Founder-held relationships become earnout length: stay until we believe the clients are ours. Client concentration becomes retention conditions: the price assumes those three logos remain. A thin data room becomes a holdback. Every term you resent in a term sheet is a doubt you didn’t remove, converted into a clause.
An earnout is the buyer’s way of making you underwrite your own business.
This is the same arithmetic as the doubt discount, one level deeper. In the multiple, doubt costs you turns. In the structure, it costs you certainty, which is to say turns you can’t see yet.
03The effective math
Run the numbers once in public. An 8.0x headline with sixty-five percent cash at close, a two-turn earnout over three years, and a small note pays 8.0x only if the earnout pays in full, under integration conditions you no longer control. If the earnout pays half, the deal was effectively around 7.0x before the time value of waiting. If it misses, you signed a 6.0x deal wearing an 8.0x press release.*
Now compare that deal to a smaller headline built on a prepared business: 7.5x, eighty-five percent cash, a short eighteen-month earnout sized as a bonus rather than a bet. On an expected-value basis the smaller number can easily pay more, with less risk, less waiting, and fewer years spent inside someone else’s integration plan.
None of which makes an earnout a bad outcome. Structure is frequently the price of a higher number rather than a penalty on it. For smaller or fast-growing agencies, particularly below the five-million-EBITDA line, a buyer pays up on historic and projected growth and ties part of the consideration to attaining it. Take the earnout away and you often take the multiple with it, leaving a smaller number measured against easier targets. The question is never whether a deal is contingent. It is whether the contingency is priced against growth you would have signed up for anyway, or is simply discounting doubt you could have removed before market.
04What compresses structure
Structure stretches and compresses on the same lever: believability. Transferred relationships shorten earnouts, because the buyer no longer needs you contractually bound to your own clients. Diversified revenue removes retention triggers. A buyer-grade data room (KPIs on a cadence, clean add-backs, contracts findable in minutes) removes the discount buyers apply to whatever they can’t verify quickly.
And preparation buys you the other structural advantage: options. A prepared agency attracts more than one buyer, and competitive processes reliably clear above single-buyer negotiations, in price and in terms alike, not just in headline. Optionality is a term sheet’s best editor.
05Judge everything on the effective number
You cannot negotiate structure at the table. By the time the term sheet arrives, the structure is simply the price of your remaining doubts, quoted back to you. You negotiate it in the six to twenty-four months before, by removing the reasons for it, one lever at a time.
So judge every offer on the effective multiple, not the announced one. Judge every advisor the same way: a banker paid on the headline has different incentives than a partner accountable for what actually pays out. And when someone promises you a bigger number, ask the two questions that matter: how much of it arrives at close, and is the rest tied to growth you would have backed yourself?
The headline number is never the number. The effective multiple is. Build for that one.
* Illustrative arithmetic, before the time value of deferred payments and any escrow or working-capital adjustments, both of which move the effective number further from the headline, never closer.
Return to the frameBuyers don’t discount your multiple. They discount their doubt. · Valuation